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2016 Oil price forecast revised higher after supply disruptions boost prices in second quarter

John Baffes's picture

The World Bank is raising its crude oil price forecast for 2016 to $43 a barrel from $41 dollars after a 37 percent jump in energy prices in the second quarter due principally to disruptions to supply, particularly from wildfires in northwestern Canada and sabotage of oil infrastructure in Nigeria.

Nevertheless, oil prices are still anticipated to be 15 percent lower this year than in 2015 as inventories are large and will take some time to diminish. The revised forecast takes into account a recent softening of demand for oil and the recovery of some disrupted supply. Energy prices, which also include natural gas and coal, are forecast to be 16 percent lower this year, the July Commodity Markets Outlook says.



More broadly, most commodity price indexes rose in the second quarter of 2016 from multi-year lows plumbed in January, the Commodity Markets Outlook reports. Abundant supplies of many commodities eased and markets became more optimistic about a rebalancing of supply and demand.  

Just as with oil and energy, most main commodity price indexes are expected to decline for the year as a whole due to large supplies and, in the case of industrial commodities, weak growth prospects in emerging market and developing economies.  However, the declines of many commodities are now forecast to be less steep than anticipated in the April outlook.

Depressed commodity prices since 2010 have weighed heavily on growth prospects for commodity exporting emerging market and developing economies, which are home to more than half the global poor. The indirect impact of slowing growth in energy and metal exporting emerging market and developing economies may outweigh the direct benefits of lower consumer prices.

Agriculture prices are projected to fall by 1 percent this year, a more gradual drop than the 3.5 percent decline forecast in April. The outlook reflects adequate supplies for most commodities and reduced harvests in South America due to dry conditions. Agricultural commodity prices are also expected to be held down by lower energy costs and plateauing demand for biofuels.

Food prices as a whole are expected to rise moderately next year, but grains and beverages prices are forecast to fall while oils and meals prices are projected to rise. Higher prices than forecast could occur if the La Niña weather pattern intensifies, while prices could be lower than anticipated if agricultural subsidies rise.

Fertilizer prices are projected to tumble in 2016 due to surplus capacity and weak demand, among other factors.

Meals prices are expected to fall 11 percent, a downward revision from the 8 percent drop expected in April, due to weak demand and the coming on line of new capacity. Price declines are led by nickel and copper.

Precious metals prices are forecast to rise 8 percent in 2016 on safe-haven buying amid worries about global growth prospects, a substantial upward revision from the 2 percent drop envisioned in April.

For 2017, a modest recovery is projected for most commodities as demand strengthens and supply tightens.

For commodity-related information please visit: http://www.worldbank.org/en/research/commodity-markets

Download the latest issue of the Commodity Markets Outlook.

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